The arrest of Meng Wangzhou could materially damage the relationship between the US and China at possibly one of the most sensitive times between the two countries in their long and torrid history

Arif Mahmud

As the US President Donald Trump and his Chinese counterpart Xi Jinping were having, in Trump’s words, “An amazing and productive meeting with unlimited possibilities for both the United States and China” at a dinner after the G20 summit in Buenos Aires, quietly on the other American continent, a transfer passenger travelling from Hong Kong to Mexico was detained in Vancouver by the Canadian authorities, following a request from the US.
The arrestee is none other than Chinese tech-champion Huawei’s Chief Financial Officer Meng Wangzhou. The US authorities accuse her of violating sanctions against Iran in 2009 by illegally exporting US tech to that country.
Meng is now facing extradition to the US for conspiring to defraud banking institutions through the violation.
According to US broadcaster PBS, Meng was the board secretary of Hong Kong based company named Skycom tech during 2008-09 and it was known that the company was owned completely by Huawei. But Huawei used the cover firm to divert US technology to Iran violating the sanctions. Meng is seen as the key nexus between Huawei and Skycom that facilitated the illegal transfer of technology. The company had sent computer equipment from Hewlett Packard to Iran that would have required export licence from the US, according to the report.

The US has an arrest warrant out for Meng that was issued by a New York court on August 22. It has 60 days from Meng’s arrest on Dec 01 to provide Canadian courts with evidence and intent.

While the arrest was made by the Canadian authorities, it may be noted that the Huawei CFO used to travel frequently to the US and has a son attending school in Boston. Many other Huawei senior officials also visit the US often. Meng is also the oldest daughter of Huawei founder Ren Zhengfei - a former non-military officer in the Chinese army who retired with the rank of major.

What is interesting about this arrest is not so much that the US is putting Chinese tech giant Huawei on trial, rather the timing of the whole affair. The case in the US over Huawei’s sanctions violation and fraud had been going on since 2011 as it has connection to the previous ZTE case. Sources said the US Justice Department had been asking to prosecute Huawei for this particular offence for a long time. But the arrest comes on the very day the US and China agreed on a 90-day ceasefire on the ongoing trade war. This is not simply a case about the arrest of one woman, or just one company, and the symbolism and significance of the move is immense, say analysts.

The arrest might actually give US leverage on the trade talks, and be used as a bargaining chip in order to get concessions from the Chinese side, they say.
Risk consultancy Eurasia Group says the arrest of Huawei's CFO in Canada will corrode trade negotiations between Washington and Beijing. “Beijing is likely to react angrily to this latest arrest of a Chinese citizen in a third country for violating US law,” Eurasia analysts wrote.

This arrest is likely to be seen by China as an attack and “hostage taking”, says writer, analyst and China expert Elliott Zaagman.

"China has a reputation for making agreements and not keeping them, not following through," he said, adding, “There's a theory that this could be a way for the US to hold Beijing to its word on the trade war.”

But the Chinese media has shown furious reactions. “The US is trying to find a way to attack Huawei,” says Hu Xijin, editor in chief of the Chinese and English editions of the Global Times. The hyper-nationalistic tabloid tied to the Chinese Communist Party, quoting an expert close to the Chinese Ministry of Commerce, said, “China should be fully prepared for an escalation in the trade war with the US, as the US will not ease its stance on China and the recent arrest of the senior executive of Huawei is a vivid example.” The Chinese Ministry of Commerce in its reaction, however, indicated that Beijing does not want to see disruption on the trade front.

But US moves against Huawei - the poster child for China's dynamic tech sector, is nothing new.

Huawei’s alleged close ties with the Chinese government raises security concerns, claims the US. In May, the US government banned all sales of Huawei phones at stores in military bases. While the phone can be purchased at some retail outlets, no US carrier offers the phone.

The US has also barred Huawei from next generation mobile technology 5G on grounds of national security and is pressuring other countries to do the same. New Zealand, Australia and Japan have followed suit.

Regarding the security concerns, James Mulvenon, vice-president of Intelligence Division of the Defense Group, Inc and an expert on the Chinese military and Chinese cyber issues, said, “If Huawei is able to get a foothold in a US telecommunications market through legitimate means, and subsequently the Chinese ministry of security or the military seeks backdoor access to intercept user data, considering the legal and political milieu in China, there is no way for the company to refuse.”

“As such, it is too dangerous in the national security perspective to allow them to have access to the market,” said Mulvenon, who is also the author of the book ‘Chinese Industrial Espionage’.

The US move to restrict Huawei raises questions over whether the firm's global expansion is set to be curtailed in some regions in the near future, say analysts.

But Huawei, the largest privately owned company in China, has grown phenomenally in recent years, from a small manufacturer of telephone exchange switches, to a global leader in tech. Known to people for its mobile phones, Huawei is making rapid advances in many other key technology areas - from cloud services to AI.

Earlier this year it overtook Apple in the number of handsets shipped with around 16 per cent of the global market share. And the growth comes despite political hostility towards the brand in US and some parts of the western world. Huawei is also currently outspending many other global players in research and development.

The company is now the world’s second largest provider of telecom network equipment and has spent almost $14 billion in R&D last year.

Despite the numerous visible attempts by the US to counter Xi’s Made in China 2025 policy and restrict the spread of Chinese global influence, the re-emergence of the Land of the Red Dragon appears inevitable.

Three of the world’s five largest companies are now from China.The writer is a journalist, working for The Independent